CFIUS under Trump: likely increased scrutiny of foreign investment


Financier Worldwide Magazine

June 2017 Issue

Throughout the election campaign and the early months of his presidency, president Trump has championed a protectionist or ‘economic nationalist’ agenda. Examples of this have included the immediate withdrawal from certain multilateral free trade agreements, such as the Trans-Pacific Partnership (TPP), as well as proposals to renegotiate the North American Free Trade Agreement (NAFTA) and to impose significant tariffs on companies importing products into the US, although a recent White House draft letter to Congress concerning planned NAFTA renegotiations signals a potentially softer approach to that particular agreement. While it remains to be seen exactly how much of this rhetoric will ultimately be implemented in the form of actual policy, it appears likely that this economic shift is here to stay for at least the next four years. Despite the media focus on the major proposals articulated by president Trump himself, this agenda has the potential of reaching various areas of US economic policy. One such area is that of foreign direct investment (FDI).

The Committee on Foreign Investment in the United States (CFIUS) is an inter-agency committee authorised to review transactions that could result in control of a US business by a foreign person (covered transactions) in order to determine the effect of such transactions on US national security. Chaired by the Secretary of the Treasury, CFIUS also includes representatives from a number of departments, including the Departments of Justice, Homeland Security, Commerce, Defence, State and Energy.

It is important to take into consideration that ‘national security’ is not a defined term under the relevant regulations and statute. There is now a concern that Trump appointees may expand the scope of CFIUS investigations to include examining whether proposed investments run counter to the protectionist platform being pitched, as well as changing the scope of CFIUS reviews through a more expansive interpretation of ‘national security’. Historically, CFIUS has focused on issues such as whether the proposed foreign investment involves sensitive technology or infrastructure. Matters of national security have been, for instance, the foreign purchase of a US firm that holds a technology or commodity of importance to the US military, or investments in telecommunications companies and services (given that it is technically possible to wiretap communications).

The concern intensified during the confirmation hearing of president Trump’s pick for Treasury Secretary, Steven Mnuchin, during which Mr Mnuchin referred to CFIUS’ role as “protecting American workers”. Such a role would certainly be a dramatic shift, especially considering that when CFIUS was last reformed in 2007 as part of the Foreign Investment & National Security Act of 2007 (FINSA), which was passed with bipartisan support, Congress made very clear that CFIUS’ scope is solely that of genuine national security concerns and not broader policy interests. This does not mean that increasing CFIUS’ reach would face universal opposition. In September 2016, 16 members of Congress called for the review of possible CFIUS expansion in areas such as telecommunications, media and agriculture, the thought being that foreign investments in these sectors pose potential “strategic rather than overt” national security threats. In that same letter, these members called for a review of a previous recommendation that the CFIUS mandate be broadened to include a net economic benefit test. While these proposals appear to be in line with the new administration’s goals, they are arguably improper, unless the FINSA mandate is revised.

The predictions regarding the extent to which Trump appointees will use CFIUS to advance the new administration’s economic agenda have varied thus far. On the more extreme end, some observers believe that CFIUS reviews could begin to focus on whether a proposed investment originates in a country that lacks reciprocal market access, an area of concern noted by the new Secretary of Commerce and CFIUS member, Wilbur Ross Jr. Others predict that CFIUS will begin targeting investors merely if their country of origin is considered a geopolitical or economic adversary. On the more conservative side, certain observers feel that any expansion will likely be limited to increased scrutiny of investments proposed by foreign state-owned enterprises. Some additional issues expected to be debated are possibly expanding CFIUS jurisdiction to include greenfield projects and limiting investments subsidised by foreign governments.

The Trump administration has different ways it can broaden the scope of CFIUS’ deliberative process. First, it may push Congress to enact amendments to the existing legislation in order to expand CFIUS’ review, which may include other considerations such as ‘economic security’. Another avenue could be to issue an Executive Order broadening the factors that CFIUS takes into consideration when analysing a proposed investment. Regardless of the details of the expansion or the methods used to implement them, it seems quite probable that CFIUS will increase its scope in some form.

The information submitted to the Committee and its deliberations are confidential, not subject to release to anyone outside of Congress and the reasons for approval or disapproval are kept secret. Such information cannot even be obtained through a Freedom of Information Act request. There does, however, appear to be potential for an increase in transparency. A staff research report released in 2016 by the US-China Economic and Security Review Commission concluded that, in response to Chinese concern regarding the CFIUS process, “there was room to increase transparency by allowing greater disclosure of unclassified evidence, arguments, and allegations considered in deliberations”. In addition, a Chinese-owned company once successfully sued the US on this issue, in a US court and based on US law, with the Court of Appeals ultimately finding that access to certain unclassified evidence used in CFIUS investigations was constitutionally required. This increased access to the justifications and supporting documentation would not only improve investor understanding of the review process, but such information could prove helpful if a foreign investor wished to later challenge the actual substantive CFIUS decision.

Faced with this expected increase in scrutiny, foreign investors will understandably seek to ensure fair and proper treatment during the CFIUS review process. They must also be aware of their options should they suffer from allegedly improper CFIUS actions, being mindful of the possible sources of legal protection for their investments and investment bids. When bringing such challenges related to FDI, foreign investors generally rely on bilateral or multilateral investment treaties, or similar language embedded in free trade agreements. These typically provide a number of protections for proposed or existing investments, such as most favoured nation and national treatment clauses, and importantly can include protections at the pre-establishment or permission phase. In this regard, the US-Argentina investment treaty of 1991 expressly mentions that “[e]ach party shall permit and treat investment, and activities associated therewith, on a basis no less favourable than that accorded in like situations to investment or associated activities of its own nationals or companies”, and expands certain protections at “all times” within the lifespan of an investment. For its part, NAFTA includes as a protected “investor” a national of the other signatory of the treaty who “seeks to make, is making or has made an investment”. Alleged violations by the host state of these various provisions are resolved by means of international arbitration.

Of course, the US has fewer bilateral investment treaties (BITs) than many leading economic states and importantly lacks BITs with major capital exporting countries. President Trump has, however, consistently professed his affinity for bilateral agreements which could open the door for the establishment of new BITs. These agreements would presumably lay the legal grounds on which aggrieved investors could rely when faced with the impact of expanded CFIUS investigations. While president Trump has yet to articulate his views on the workings of investor-state dispute settlement, the recent White House draft letter concerning NAFTA renegotiations has advocated for maintaining NAFTA’s use of international arbitration, proposing to “maintain and seek to improve procedures” in the dispute settlement system. Such a position could indicate a continuation of the current investor-state dispute settlement framework, not only for investment protections contained within free trade agreements, but in future BITs as well.

Providing yet another hurdle, however, is the fact that the model US BIT contains a national security exception that applies to every obligation in the BIT, and there is no reason to believe that president Trump would omit such a provision from any future agreement. This could put foreign investors in the same position as American critics of the proposed CFIUS expansion – arguing that such investigations would fail to concern legitimate issues of national security. If a challenged CFIUS action was indeed based on the possible new role of “protecting American workers”, the burden of establishing a national security link could prove troubling for the US government.

As Mr Trump’s presidency is still in its infancy, it remains to be seen precisely how FDI will be treated under the new administration and whether new bilateral agreements will be pursued that could expand the protection for such investments. In the meantime, foreign investors must be aware of these potential obstacles when preparing investment bids and must understand possible domestic and international options, including those under applicable investment treaties and free trade agreements, should they encounter CFIUS obstruction.


Bernardo M. Cremades, Jr. is a partner and Patrick T. Byrne is an associate at B. Cremades & Asociados. Mr Cremades can be contacted on +34 914 237 200 or by Mr Byrne can be contacted on +34 914 237 200 or by email:

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Bernardo M. Cremades, Jr. and Patrick T. Byrne

B. Cremades & Asociados

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